COVID-19 Lease Review Penalties and Extensions: FAQs and Guidance from Revenue Scotland

LBTT lease review return penalties during the COVID-19 period

Revenue Scotland temporarily took a more lenient approach to penalties for late LBTT lease review returns and related payments where the relevant date fell between 21 February 2020 and 31 August 2021. This applied mainly to non-residential lease review returns, especially three-year reviews, and could mean a penalty was reduced to nil or suspended. However, the duty to file the return still remained.

• The temporary COVID-19 relaxation applied only to LBTT lease review returns with a relevant date between 21 February 2020 and 31 August 2021.
• Revenue Scotland could issue a penalty notice but reduce the penalty to nil, so the penalty was formally notified but had no financial effect.
• In some cases, the penalty was suspended, giving the taxpayer extra time to file the return by the deadline stated in the suspension letter.
• If a suspended return was not filed by the stated deadline, the penalty became payable and further penalties could arise.
• This concession did not remove the filing obligation, and future lease review returns still had to be filed on time.
• If the case fell outside the COVID-19 dates, the taxpayer might still rely on a separate reasonable excuse argument under the normal rules.

Scroll down for the full analysis.

LBTT lease review return penalties during the COVID-19 period

This page explains Revenue Scotland’s temporary approach to penalties for late LBTT lease review returns and related payments during the COVID-19 period. The key point is that, for certain lease review returns falling within a defined date range, Revenue Scotland said it would treat the case more leniently by reducing a penalty to nil or suspending it. This did not remove the filing obligation. It changed how penalties were handled.

What this rule is about

Under LBTT, tenants of non-residential leases may have to file lease review returns at set points, including the three-year review. These returns can trigger penalties if they are filed late or if tax is paid late.

The official material deals with the disruption caused by COVID-19. Revenue Scotland recognised that some tenants and businesses may have struggled to access premises, records, or professional help during lockdowns. Because of that, it adopted a special approach for lease review returns with a relevant date between 21 February 2020 and 31 August 2021.

This was a specific concession for lease review returns. The source also explains that Revenue Scotland viewed three-year lease reviews differently from ordinary conveyances or the grant of a first lease, because a three-year review does not involve a new property transaction in the same way.

What the official source says

Revenue Scotland states that it would treat all lease review returns with a relevant date between 21 February 2020 and 31 August 2021 as falling within the COVID-19 period.

Where a penalty notice was issued, Revenue Scotland says the penalty may be notified but reduced to nil. The source links this to its power of special reduction under section 177 of the Revenue Scotland and Tax Powers Act 2014.

In some cases, Revenue Scotland says a penalty was suspended. The practical effect was that the taxpayer was given extra time to submit the lease review return. If the return was submitted by the deadline in the letter, the penalty would be reduced to nil. If the return was not submitted by the end of the suspension period, the penalty would become payable, with 30 days to pay, and further penalties could arise.

The source also makes clear that this relaxation applied only to the defined COVID-19 dates. If a case fell outside those dates, a taxpayer might still argue that they had a reasonable excuse, but that would be considered under the normal reasonable excuse rules rather than the COVID-period relaxation itself.

What this means in practice

If your LBTT lease review return had a relevant date between 21 February 2020 and 31 August 2021, Revenue Scotland’s published position was more favourable than the ordinary penalty rules might suggest.

There are two main situations described in the source:

• A penalty was issued, but reduced to nil. This means Revenue Scotland still formally notified the penalty, but then cancelled its financial effect.
• A penalty was suspended. This means the penalty did not disappear immediately. Instead, you were given a further period to file the return. If you met the suspension conditions, Revenue Scotland would confirm that the penalty no longer remained outstanding.

The source is careful to say that you still had to meet your obligations. In particular, you had to file the overdue lease review return, and you had to file the next three-year review return on time. The concession was not a permanent waiver of future compliance.

The material also suggests that this treatment was aimed particularly at non-residential lease review cases where businesses may have been shut out of their premises or otherwise disrupted by lockdown restrictions.

How to analyse it

If you are trying to work out whether this Revenue Scotland approach affects your case, the main questions are:

• Was the return a lease review return, rather than a conveyance return or first lease return?
• What was the relevant date for the lease review return?
• Did that date fall between 21 February 2020 and 31 August 2021?
• Did Revenue Scotland issue a penalty notice, and if so, was it reduced to nil or suspended?
• If the penalty was suspended, what deadline was stated in the suspension letter?
• Was the return actually filed by that deadline?
• If your case falls outside the COVID-period dates, do you have a separate reasonable excuse argument?

It is also important to distinguish between three different ideas:

• The filing obligation itself: this remained in place.
• The penalty position: this is where Revenue Scotland applied the temporary relaxation.
• A reasonable excuse claim: this is a separate route that may still apply, especially outside the defined COVID-period dates.

The source expressly says that Revenue Scotland may reduce, suspend or cancel a penalty for failure to file or pay on time if it is satisfied that there was a reasonable excuse and the obligation has since been met.

Example

Illustration: a tenant of a non-residential property was due to file a three-year LBTT lease review return during the period when COVID-19 restrictions were affecting access to the business premises and records. The return was filed late. Revenue Scotland issued a penalty notice, but reduced the penalty to nil because the relevant date fell within the COVID-19 period it had identified. The tenant still had to ensure that the next review return was filed on time.

Another illustration: a tenant did not file the lease review return on time and Revenue Scotland suspended the penalty instead of cancelling it immediately. The suspension letter gave a deadline. If the tenant filed by that date, Revenue Scotland would confirm that the suspension conditions had been met and no penalty remained outstanding. If the tenant missed that deadline, the penalty would become payable and further penalties could follow.

Why this can be difficult in practice

The source is short and operational rather than fully legalistic, so some points need care.

First, the concession is tied to the “relevant date” of the lease review return. In practice, readers need to be sure they are identifying that date correctly under the LBTT lease review rules.

Second, the source distinguishes lease review returns from conveyances and first leases, but it does not set out a wider rule for those other transaction types. You should not assume the same COVID-period treatment applied elsewhere unless another source says so.

Third, there is a difference between an automatic COVID-period relaxation and a reasonable excuse claim. If your circumstances fall outside the stated dates, the source does not say you get the same concession. It says reasonable excuse may apply if business closure or disruption caused the failure.

Fourth, where a penalty was suspended, the exact terms of the suspension matter. The source says the return had to be submitted by the deadline in the letter. Missing that date could reactivate the penalty.

Key takeaways

• Revenue Scotland applied a temporary COVID-19 relaxation to LBTT lease review returns with a relevant date between 21 February 2020 and 31 August 2021.
• A penalty could be reduced to nil or suspended, but the return still had to be filed and future lease review deadlines still had to be met.
• If your case falls outside the defined dates, the main alternative route mentioned in the source is to argue reasonable excuse.

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Useful article? You may find it helpful to read the original guidance here: COVID-19 Lease Review Penalties and Extensions: FAQs and Guidance from Revenue Scotland

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